NXTGEN

The Make-or-Break Factor of Country Variances

We previously examined the KPMG Venture Pulse Q4 2023 report on global VC investing activity in 2023. We now examine Asia and Latin America and use Crunchbase data to supplement KPMG’s data.

Asia makes up about 27% of global VC investing, while Latin America (LatAm) is a far more muted 3% after two tough years for the region. However, along with Africa (around 1%), these three regions make up the most important emerging market regions regarding economic growth and population; therefore, diving into them in greater detail provides a good proxy for what happened to emerging markets in 2023 from a VC perspective.

China facing headwinds

Trends in Asia mirrored the broad global trend in 2023, with VC investments down 38% in value terms. However, this macro view hides some significant in-country variances. VC activity in China almost halved in Q4 2023 and is at its worst level in 7 years, probably driven by rising economic tensions between the US and China. This scenario spilled over into the Asian VC industry in 2023, with two mega-funds (GGV Capital and Sequoia Capital) separating their Chinese divisions from their US operations in a clear signal that capital flows from the US to China are under pressure. With China representing roughly two-thirds of the Asian region in VC, this would’ve profoundly affected the total performance and will likely provide some headwinds for recovery in the region in the medium term.

Not all Asian countries are on a downward trend

Japan Going Against the Grain

However, one should not only focus on China when looking at Asia. For instance, Japan has been a shining light in the region, showing steady growth. A 33-year high has likely assisted this in Japan’s stock market, but it’s interesting to note that Japan has now seen four quarters of growth after a bottoming out in VC investing in Q4 2022.

LatAm is The Hardest-Hit Region Globally

The 2-year view on VC investing in LatAm is not for the faint-hearted. From the peak in 2021, VC investing has dropped 57% in 2022 and then another 63% in 2023, to be sitting at around 16% of the deal value in 2023 as it was in 2021. Notably, 2023 was even 20% lower than 2019, which suggests that the fall from grace has been somewhat overdone, a point that we noted in our blog on when LatAm might see a recovery. Being the hardest hit of all the major regions since the boom of 2021, LatAm is also likely to be the quickest to start recovering. This is playing out in quarter-on-quarter pick-up in deal value in Q3 2023 (25%) and then again in Q4 (6%).

Did Brazil Find A Plateau?

The largest VC dealmaking country in the region is Brazil, with roughly 60% share. The chart below indicates that after a difficult period since early 2021 and what looks like a “false dawn” recovery in the first two quarters of 2023, Brazil might have found a plateau on the downside, as deal values look to have stabilised over the whole of 2023 when taking a longer-term view. This bodes well for the region’s recovery since a continual decline in a market this size would provide a considerable drag to any recovery.